Home owners who lose their properties are innocent victims of wild lending, says Bank

[Legal Beagles]

Thousands of Britons who lose their homes in the credit crunch will be the 'innocent' victims of irresponsible lending, the Bank of England governor said.

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[Amethyst]

Re: Home owners who lose their properties are innocent victims of wild lending, says

Tho I do see MK's point the consumers are not really innocent victims. The market has been looking like it was heading for a downturn for a while and that should have been foremost in peoples minds before stretching themselves to the limit on 100% mortgages on overpriced property. But people still believe what the banks and brokers tell them.

Thousands of Britons who lose their homes in the credit crunch will be the 'innocent' victims of irresponsible lending, the Bank of England governor said.

Mervyn King caused a stir at the British Bankers' Association annual conference as he compared the behaviour of high street lenders to a 'party' which has become 'wilder and wilder'.

He warned 350 banking chiefs that the world 'was passing through the most prolonged period of financial turmoil that most of us can remember.

'If banks feel they must keep on dancing while the music is playing and that at the end of the party the central bank will make sure everyone gets home safely, then over time, the parties will become wilder and wilder.

'That might not matter were the consequences limited to the partygoers. But they are not. When the party ends, some innocent bystanders may lose their homes altogether.'

The number of repossessions is predicted to jump later this year to 125 a day, compared to 75 a day last year.

Yesterday Bank of England figures showed that despite it cutting interest rates, some mortgages have shot to their highest level for eight years.

In a further blow, experts warned yesterday that fixed rate mortgages are going to get even more expensive in the next few weeks, possibly days.

They urged anybody who needs a fixed rate mortgage to get a deal immediately before the rates climb even higher.

This is because swap rates - which dictate the level at which lenders price their fixed rate deals - have soared in recent days.

They jumped from around 6 per cent on Friday to 6.3 on Monday, the biggest rise in a day for 16 years.

Michael Saunders, chief UK economist at investment bank Citigroup, warned that 'further sizeable rises' are on their way after the 'savage' jump.

The Bank of England's figures show the biggest losers are people who want the security of a fixed rate mortgage but can only afford a small deposit.

The average interest rate on a five-year fixed rate mortgage for 95 per cent of a property's value is now a hefty 6.98 per cent.




At this level, which is the highest since June 2000, it is nearly £470 a year more expensive than it would have been last July before the credit crunch struck.

There are now so few two-year fixed rate loans for people borrowing 95 per cent of a property's value that the Bank did not publish figures yesterday.

It is the first time this has happened since it began keeping records on average mortgage rates in 1995. Borrowers used to be able to choose from a range of 235 two-year fixed rate products requiring only a five per cent deposit last July.
Today, there are just 18, according to the financial information firm Moneyfacts.

Ray Boulger, from mortgage brokers John Charcol, said: 'I am expecting to see a whole raft of lenders put up their fixed rates over the next few days.'

To make matters worse, the City is betting the Bank could raise interest raise three times this year to head off rampant inflation.

It comes as further concerns were raised yesterday about people who bought homes over the last year without putting down a deposit.
Falling house prices mean people with mortgages for 100 per cent of the property's value are at risk of negative equity - when the size of the mortgage is larger than the value of the home.

Figures, from the Council of Mortgage Lenders, show 23,310 people took out a 100 per cent mortgage in the 12 months to the end of March.

They could now be in negative equity, unless their home has escaped the house price meltdown or they have found the money to cut their mortgage.

Citigroup predicts the problem is going to get worse, with 250,000 in negative equity by the end of the year.
With house prices forecast to fall up to 25 per cent by the end of 2009, the problem will become even more widespread.
The latest evidence of the slowdown in the housing market emerged yesterday from the Government's own figures.

Average prices in the UK have dropped one per cent in the three months to the end of April to an average of £218,875, said the Department for Communities and Local Government.

The National Association of Estate Agents said the state of the housing market varied across the country.

Chris Wood, the association's vice-president, said: 'Some areas will be more affected than others. People really need to look to their local markets to get a true picture.'

[argentarius]

Re: Home owners who lose their properties are innocent victims of wild lending, says

I'm not sure what Merv's definition of "innocent" is.

There are a few reasons why people might end up losing their homes; some would have happened anyway (credit crunch or no credit crunch) such as those who lose their jobs and can't find new ones, or who run up lots of other debt and can't maintain their mortgage payments.

The sort of category he might be thinking of (but I don't necessarily agree) are:

- those who borrowed on short-term fixed or discounted deals, on the expectation of being able to remortgage and keep their rate similar a few years down the line. People in this situation could readily have chosen lifetime tracker or fixed rate products, with rates not much higher than the short-term "give-away" rates they opted for. They took a risk and lost the gamble. They aren't "innocent".
- those who borrowed over 95% of their property value, on short-term rates (see above) and on the expectation that house price growth would increase their equity. People in this situation were taking a gamble on being able to remortgage and/or on house prices rising. They aren't "innocent".

There has been a problem with people who honestly couldn't afford to buy a house, doing so anyway. If people can't afford the repayments on their mortgage on standard variable rate, when they are only around 7-7.5%, they shouldn't have bought in the first place. SVRs were 14% or more in the 1980s when the last housing market crash happened, so people shouldn't be squealing because of rates of 7% or so.

[stevokenevo]

Re: Home owners who lose their properties are innocent victims of wild lending, says

Maybe MK was mis-quoted, and in actual fact he said "ignorant" rather than "innocent"?? lol

Plenty of people take on mortgages, and don't really have a clue how they work or know anything about the 'recent' market history.

I will put my hands up and say, when i took on my first mortgage, i was 22 and didnt really know anything about 'money', just how quick i could earn it and how quick i could spend it lol.

Although i was never in any financial difficulties then, when my mortgage deal ended i was put onto the lenders standard variable and that was it. i plodded on with the increased repayments etc.I didnt know how easy it was to change lender, or how to shop around. Its only when i met one of my great friends, who happens to be a mortgage advisor, where my eyes opened to exactly what was happening, what my options were etc. So all in all, back in those days, i was ignorant not innocent.

[stevokenevo]

Re: Home owners who lose their properties are innocent victims of wild lending, says

so people shouldn't be squealing because of rates of 7% or so.

Just as a wee side note, the above got me thinking. So after a quick calculation i worked out if my mortgage interest rate hit 7%, i could handle it. If my sisters rate hit 7% she would have an increase in her payment of £1100/month

Thats enough to make me squeal pmsl

[scoobydoo]

Re: Home owners who lose their properties are innocent victims of wild lending, says

I really do agree with the article . I think the salary ratios available have been giving the consumers the impression that if the BS are willing to lend the money then they can afford it. I agree that the mortgage market has become extremely complicated and sometimes people are just relieved to get an offer of a mortgage and get on the property ladder Although there were rumours of a property crash - they had been going on for sometime - and up to now had not materialised - so consumers still thought that property ownership was the better alternative to renting. Also a lot of the problems are caused by shortage of funds do to with sub prime lending in the USA - the banks fault not the consumers.

I have seen OTR some absolutely terrible cases of the BS taking possession extremely quickly and having no sympathy at all for the borrowers and I consider it very short sited.

I still feel that the BS in a lot of cases should consider taking back the properties - but renting them out to the borrowers at a reasonable rent and giving them a year or so to try and recover their position. this would stabalise the postion - the BS would still own the properties and have a long term asset on their books . They could arrange the rentals through independant estate agents .

Of course if the rents were defaulted of it means the consumer should not be allowed to stay .

I dont think we need to go back to the times of house prices being relied on as an investment - (that bu****s me up as mine is supposed tobe my pension!) but we do need some sort of stability.

Lower prices are good for first time buyers and they are all out there waiting - but are probably scared now to enter the market

We need more confidence in the banks and BS - and it is not there at the moment.